Crisis Management

Are you all prepared for the worst of times? How many organizations are well equipped to manage crisis today?

The truth is that, even if there is a ‘fool proof’ system, corporate excellence comes with vulnerability. There is no escaping, even if you are the mightiest of all. The bigger you get, the tentacles of collapse can engulf you-more like you are targeted at the perils of ‘slow ruin’. Being the king of the industry now can’t boast of an unchallenged future. Many of the multinationals, more than half of them which Forbes magazine called as ‘great companies’ since 1995 have suffered precipitous decline in the last 15 years. Seventy percent of the Fortune 500 companies listed in the year 1955 are now extinct. Of the companies on the 1979 Fortune 500 list, 40 percent no longer exist. Of those on the 2000 list, 30 percent are already disappeared.

What makes companies go extinct? What makes the mightiest fall? One answer is pretty clear- organizations that are not prepared to handle crises presented by the worst times of economic climate are prone to suffer badly. Companies that are built for only good times have to stop dancing when the music stops. But the real winners are the ones who make their music, even at the worst of times.

The economic climate is changing; the change has become the order of the day. Recessions and economic paranoia spreads like wild fire. The good news is that change creates opportunity. The bad news is that many don’t see things that way.

Our instincts are primal. They are rooted by fear and courage. Many people see danger while some see opportunity in crisis. Those who see opportunity pauses between the stimuli (what is causing the problem) and response (how we must react to the problem) and arrive at solutions.

When we are challenged with business problems or overwhelmed by an economic change, often triggered by the human nature, we tend to take three critical positions.

My in-depth study of companies and individuals has helped me name three primal human instincts. When we are encountered by a threatening proposition or a changing situation at large, we tend to embrace one of these three primal instincts. They are namely:

1.The resistance instinct.

This is the most dangerous proposition. This is the instinct to disapprove the very existence of danger or a situation even when they are vividly present. Some people live in a state of denial. Common behaviours are ignoring the situation, just like how an ostrich buries its head when encountered by danger.

As a matter of fact, the people who get into trouble during a downturn are invariably the ones who go into it unprepared. Many people were affected by recession because they thought that recession will not affect them. They were unprepared and by the time it hit them, the unprepared ones were the most who suffered from the economic disaster and paranoia.

The state of denial is not a solution to any problem. Problems do not disappear by ignoring them. What you resist will persist and since you do nothing about solving the problem, the problems will remain eventually unresolved. Here; an organization or an individual who ‘resist’ changes will be wiped out by the tides of change.

2. Survival instinct.

When there is an economic paranoia or recession, usually the economy becomes smaller. Business activities shrinks and markets go down. People get into conservation mode than spending mode. People want to hold on to every penny they have. People will begin to believe in scarcity. The fear grows rapidly and the only thought you have is to survive.

In order to survive; individuals and organization begin to cut costs and downsize jobs. When they do that for survival, they will also drain most of their talent and resources, similar to the panic actions of a captain when the ship is sinking. Very often good projects are pushed to the back burner waiting for the right time. Someone once observed that there are no bad predictions; there’s only bad timing. Everything that booms at one time must bust another time like the bubbles. Today a larger concern is growing for the sustainable growth versus making bubbles based on economic deregulation and exaggerated speculations.

When an unmanageable change hits you hard, it is natural to reveal your survival instincts but what is very often forgotten is that survival instincts must be used as a short term strategy till you stabilize the unmanageable situation. Companies who use survival instincts for longer term tend to settle for mediocrity and they perish on a longer term. Those who tend to be overcautious after the crisis situation, remain in a bigger unresolved crisis. Mere survival instinct of hibernation can buy you time but this is no sure guarantee for success. The survivors take long time to recover from change. They act cautious and suspicious to the market changes and seldom notice the window of opportunity.

3. The evolutionary breakthrough instinct.

This is the winning formula. You not only breakthrough the challenges but also adapt to an evolutionary change. This is the winner’s instinct; which is the ability to breakthrough a problem to bring about favourable changes out of the most unfavourable circumstances. Here ‘crisis’ is understood literally as what Chinese letters that mean-danger and opportunity. When a disastrous situation is at hand, winner’s instinct will ask problem solving questions like ‘how can I turn around this obstacle into an opportunity or this adversity into an advantage’. Winners look for the flip side of an adversity or a crisis. They become solution providers and hence enterprising people who profit from their problems as well as others.

The evolutionary breakthrough instinct is responsible for keeping the mightiest from falling. Your ability to breakthrough challenges and problems give you the power to navigate and direct your destiny from any breakdowns. Remember every breakthrough in history is preceded by breakdowns. Breakdowns are actually empowering. As Robert Collier once wrote- ‘In every adversity there lies the seed of an equivalent advantage.’

As part of the evolutionary process, new steps will be taken. During economic crises, the vital indication would be that, what you do is no longer giving you the result that you are after. It is time to change and switch patterns. May be it is an invitation to take on new projects. Whatever it may be- it is the call for action. Here you do not survive- you thrive- you adapt, revise and revive your strategies. The truth of the matter is that change is nothing but a revision for constant improvement. You will embrace change with your breakthrough evolutionary instincts.

Let’s assume that you are enraptured in a global economic crisis. How do you really thrive in an economy that is headed for a massive decline? Or better yet, how do you really profit from a recession?

Here is the strategy: In a recession economy, what makes you more competent is the price factor. The reason is that primarily the attitudes of customers change during the recession. When the economy is growing the major concerns of customers is on quality, service, reliability, and fair prices. In good times, the customers are very loyal to the suppliers who provide all these. But when the economy goes down, customers get very calculative and cautious in their spending. They aren’t satisfied with a fair price anymore; they want your lowest possible price. There is no loyalty factor. Customers shift their loyalty to a supplier who can cater to their need at the lowest price possible. Now, here is the advantage. Become a low cost provider of products and services. Start competing on price.

Competing on price is possible if you know how to reduce your prices and yet maintain your profitability. Cost cutting becomes a mandatorily process. But you should be cutting them when you see the first warning signs of a possible collapse. You can’t wait for a customer to tell you that your prices are too high. Watch out for the warning signs. You must make your move as soon as you see clear indications of an economic crisis. Don’t wait for the statistics to show up, instead pay attention to everything that is going on around you. You will see clear indications in your market; means if it is not growing, it is declining. You’ll see the signs, not only in your business but among your friends and other acquaintances. When customers spend less, often they do because they expect bad times ahead. Anticipating slower sales, companies stop hiring. Projects are put on hold. People don’t pay their bills on time. Everyone acts conscious and cautious with their cash.

Having an awareness of what is going on in the market, gives you an advantage to prepare for the worst times. The right time to prepare for the worst times is in the good times. In good times you can think clearly and logically. Having mentally disassociated from a problem gives you an edge to think clearly and strategize better. The secret of lasting organizations is that they are prepared for the worst times. They do not panic when crisis show up, instead they deploy strategies to use the challenging times to their utmost advantage. When others sink in problems, they breakthrough and evolve. When others complain, they compete.

Apply your instincts wisely. Bottom line is that unprepared people get hurt in an economic downturn. But if you have a plan, you can come out stronger than ever. Have a breakthrough plan. Anticipate and arm yourself with counter measures. If you still keep a spare tyre in the trunk of your car, spare yourself some time to manage tomorrow’s crisis today.